Operating leverage involves the use of:
A)equity and debt in equal proportions.
B)market power.
C)debt.
D)fixed costs.

Question

Quizplus · Accepted Answer

Operating leverage involves the use of fixed costs. Fixed costs are expenses that do not vary with changes in production or sales levels, such as rent, salaries, and interest on debt. By using a higher proportion of fixed costs in a company's operations, the company can increase its operating leverage, which means that a small change in sales can result in a larger change in profits. However, this also means that a decrease in sales can result in a larger decrease in profits.

Operating Leverage Involves the Use Of